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Destroying Customer Value

My wife enjoyed her mobile phone sim-only subscription at Telfort (a KPN Subsidiary) for the past two years. She thought she had great value for money paying no more than around 13 euro/month for 300 minutes of call time and 100 text messages. (My wife really doesn’t care about having access to the web and her online social networks through her mobile). That was until a month or so ago she noticed that the monthly invoice increased with around 10 euro to 23 euro. Because of the holidays she didn’t spend a lot of time at it until today.

The Telfort approach, in my opinion, is the perfect example of a 1.0-inside-out-goods-dominant-customer-value-destructive approach. Allow me to explain:

What happened

After looking into the details of what happened it seemed that her two year subscription ended and was automatically renewed at the same conditions, without the discount offered two years ago. No questions asked, no renewal offer made, just extended the contract with a 75 % rate-increase.

She was also presented with a personalized message online that she was eligible for an offer of 17 euro/month, and that she could shop around for other offers. So she did. Only to find out that exactly the same package as she holds today is now being offered at approximately 8 euro/month, which is nearly 50 % lower than she paid before!

What she did

So, what she did was extend the contract for another 24 months at the rate of 8 euro/month. So Telfort gets to keep her, but still a lot of value has been destroyed, and here’s why:

Telfort pi**ed-off my wife. She came upstairs to my home-office to tell me the story immediately.

Knowing her, she will for sure tell at least her mother, her sister and some friends today (through the old-fashioned phone) how Telfort tried to steal something like 15 euro/month from her, by not telling her the options she had, when the contract expired. For the upcoming weeks she will tell the story wherever the topic of conversation allows it and for the upcoming year at least, it will resurface on several occasions like birthday parties etc etc. In two years from now, when her subscription ends, the story will resurface again.

I’m as surprised as she is at the ignorance of Telfort, and to such an extent, that I’m even blogging about it.

On top of that, my wife said to me: “if they would have just extended at the same rate I was paying before, I would not even have noticed anything, and I would still be a very happy Customer. Like she did before, she would even recommend Telfort to her friends, because of the low costs and easy to use online self-service to change your subscription etcetera..

So, let’s see what value has been destroyed:

Customer Lifetime Value: From the financial perspective at least around 5 euro/month (difference between the 13 and 8 euro/month), thus 120 euro for the two years of missed revenue. Which is in fact, all else remaining equal, 120 euro net margin thrown away by Telfort. On top of that, Telfort accrued additional costs for having to change the subscription status twice now.

Customer Referral Value: The likelihood of my wife recommending Telfort to anyone has dropped to the lowest level. My wife may not be an “influencer” online, but I know for sure that her telling this story will influence her friends and family, resulting in a destruction of:

Customer Network Value: If she would only NOT recommend Telfort that would be that, but now she has started spreading the word of her negative experience, resulting in an increased likelihood that people in her network, and now mine too, will no longer consider Telfort when renewing their subscriptions with other providers.

Value to the Customer: my wife’s perceived value of her subscription with Telfort has been significantly reduced, even although she now pays less than two months ago. She is angry and most of all disappointed that her trust in Telfort has been blamed by them. On top of that, she had to go through all the effort of finding this out, costing her not money, but valuable time and emotional distress.

So, when do companies realize that, while they may stand in their right when automatically extending contracts with conditions that favor only themselves, it is very likely that they will end up destroying a whole lot more value compared to a situation in which they would have helped the Customer keep, or even increase, her value-in-use.

A question for you:

Now maybe (just maybe) my wife was tagged as a “low value Customer” for which Telfort set-out the self-service strategy.. Now you tell me: do you think that was a smart strategy? What could/should Telfort have done differently? I’m curious to hear your views on this.

Are things not changing gradually with the advent of price comparison sites which make it easier for the consumer to do a straight comparison i.e. service and value? Plus a lot of them are incorporating customer feedback which helps you from stepping from one pile to another.
In my opinion a lot of consumers can’t be bothered unless something really gets their attention.
I think things are changing but it will just take time until people realise how easy it is in most cases to change. The providers will then have to rely on something other than automatic renewals.

I agree with you to the extent that, obviously like in the case of my wife, Customers do need to take that last step of voting with their feet.. This is something easily done when we’re talking restaurants, hotels, airlines etc, but gets a lot more complicated when we’re talking the hassle of changing phone numbers, e-mail addresses, or just ordinary fines for stepping out of a contract.. Exit barriers seem to play a large role in all this, in my experience at least. Yours?

That’s pretty dodgy of them, I guess they thought they could get away with it. Although recently, I experienced a weird thing with my Internet provider, though I’m already on their retention program, months after, I got a call that asked me if I wanted one, which I was all, “but I’m already on it?!” I guess, the key is clear and well managed documents and communication between customers and the brand.

Taking it to heart from what the customer service rep said… I ended up finding a better package for my mom (cheaper and faster) from a competitor… so when i canceled her package all was good, when calling to cancel they asked why and i gave them the reason, it’s cheaper then yours, it’s faster than yours…

to date, year and a half later, the company my mom was with for years still calls to find out if she wants to go with them, after many no’s they still call…

In some ways I feel this was suppose to happen to Wim’s wife so that Wim can express what we’ve been talking about over the past year about VALUE!

Yesterday saw an RT from @digitaltonto from @Jabaldaia about “We do not create a culture of #innovation with metrics! It builds on the basis of values!”

and finally reading through the comments someone mentioning that it’s the customers who will advocate change required.

In some ways I agree, it’s taking action…. but as usual we always here about playing it safe then playing it with principle…. like mentioned Wim’s wife was comfortable with the service provider, she was going to get it for cheap.. so in some ways who really cares…

Then it also comes down to company acquisition vs/and/or customer retention…

What’s an example of value?

A story… a couple of years ago while visiting my mother in Canada, i stayed with her for the few months, my mother was on an internet lite package of $19 month, she only used the internet for email, playing poker online and skype usage. So it was a good package for her…

However, my second month there my mom asks me why is the internet bill 30 dollars. When she only pays 19? Showing me the bill I noticed that anything over certain amount of usage is charged more. I told her that don’t worry it’s not you, it’s me being here and the max internet usage for your package was passed.

But here’s the thing…. she says to me (note my mom is 75 with no prior business experience) why would they not call me after the second month if they can see i went over to perhaps to suggest a better package…

I said why would they call to do that? She says, i don’t know but if i go over one month then i would understand but if i go over a second month then maybe they would of seen that and suggest a better package….

She had a point… so i called customer service and asked them to find out. Why was my mom not notified about her over usage and perhaps offered a better package.

Their response… “it’s not in our policy to do that sir” looking back at that experience and looking today after a long haul of understanding value makes me realize that it’s impossible to give an entire cultured business environment of executives the impression that value to them is beyond metrics, acquisitions and fine tuned metrics of how to retain a customer….

the value of values is just that “service” it would of been a service of value to have a crm system that gives alerts to notify people of change, in this case it would of been a courtesy call, email, whatever to Wim’s wife to suggest that her package will be changing and here are your options. or it would of been a courtesy to call my mom and say it’s been two months you’ve exceeded your limit perhaps suggesting a better plan…

but customers are week not because they don’t understand, it’s because we’ve been accustom to trusting others have our backs to make the right decision, not only the right metric decision but the right values decision….

(apologize for the long story) but I think after reading this post, reading how common the same story is told that a customer is the last to know and the mentality that “hey whatever” is the values based change we need.

Just to throw another thought in, in case it helps. It’s unlikely that any telco will start with the policy of favouring new customer acquisition over retention, or vice versa (though I accept that’s how it may appear from the outside). You should assume that they will have a new customer acquisition team, headed by a senior exec, and a retention team, probably headed by a different exec. Both teams will be working very hard to meet their goals (and earn their bonus). But very often there will be internal conflicts because their objectives are not consistent. And they will also have a bunch of people who feel like the poor relations – a service recovery team whose job it is to pick up the pieces when the policies of one team conflict with the other and a customer is caught in the middle. This isn’t how it should be, it’s just how it is in all but the best places where they’ve got their culture better sorted.

I think it helps our understanding of why things are not as they should be if we try not to over-simplify things – which is what we do when we talk about ‘the company’ as if it is capable of rational thought as an individual is. Our requirements as customers are certainly simple – and obvious. But delivering them is usually through a complex system of organisation, procedures and technology, overlaid by high level business decisions that are often made in favour of shareholders rather than customers. (I know those are actually the same over the longer term – but they do not always appear so to senior executives taking a short term view. And the investors must take some responsibility with their insatiable demands for quarter on quarter performance).

Chronic service problems typically occur in large companies, and they are certainly much harder to solve in large companies. The problem is that there is not one person – there are call centre operators, their team leaders, their managers, their heads of department, their executive teams. They all have their own personalities and local objectives to deal with – and their own agendas to do with the personalities and politics going on around them.

And there are other factors that play a huge part, and can equally be disablers as enablers, such as their HR policies, their IT departments, their finance rules….

The thing you might find surprising is that if you talk to any one of these individuals in isolation, you would almost always find someone who thinks exactly the way we do – and who is frustrated that things are not as they should be.

You also find the 80:20 rule at work. The vast majority of customer interactions are satisfactory. Making it all work harmoniously is a non-trivial problem – and sadly most are content to settle for the 80:20.

This is the mindset that gets companies, and customers, into situations like this. Unfortunately, they are not obvious, nor simple. Neither are the ones for the company.

The dialog between the two entities, which Social Media is supposed to aid when done correctly, is what is missing to solve this issues.

A relationship always suffers when assumptions about desires and needs and wants take become the main conversation model. It is not about assumptions, it is about listening, then acting. I could draw a million parallels to human relationships (OK, probably not a million – more like a few dozen easily) and use that as guide for the organization to know what to do.

Alas, you cannot force companies to listen to their customers with the intent to act.

And, until that happens – statements like the one you make will continue to ruin relationships between organizations and customers.

Sorry that you think my assumptions are not helping the cause of consumers – that’s the opposite of my intent. However I maintain my position that customer requirements are usually simple.

Perhaps there’s confusion over what we each mean by ‘requirements’. For a phone company I want the service to work, I want it to be reliable, I want to be able to change or cancel easily and I want to be billed correctly. If something goes wrong, I want it fixed quickly. Oh, and I don’t want to feel ripped off (which is sort of where this post started). That’s about it.

I am on record that I think using social media is currently a big fail for interacting with large companies when something has gone wrong. It means the customer was either not able to contact them, or they didn’t fix the problem first time (or second or third…). Scanning Twitter and Facebook for people who have become so frustrated that they are driven to shame the company publicly is the way social media is used today (if at all). I would rather they improved the first line service.

But my main contention here is that it’s an over-simplification when you talk about ‘the company’ as if it is one individual. It’s not, it’s a lot of people all working (usually sincerely) to different aims. Do you mean the call centre operator, or their manager, or the people who set the tariffs, or the execs, or the accountants, or the investor relations people? There are a lot of good people there, but if it were easy they would get it right a lot more often.

That’s not to say I’m sympathetic when they get it wrong, we should complain loudly and challenge the status quo – but we just shouldn’t underestimate the difficulty of getting it right, and we should be a little more sophisticated about who we complain to.

Some great ideas in here, and truthfully I’m impressed that Telfort was willoing to engage in the dialogue. That in itself may give some hope as to their willingness to change to meet the times.

What strikes at our sensibilities is that anyone reading & responding to this post (myself included) likely maintains the worldview that company-customer loyalty should cut both ways. When we see examples where a company gives its best deals to new or non-customers, it offends those of us who have been loyal in the short or long term. What makes matters worse, when someone tries to engage the “new customer offer” they’re often told something along the lines of, “I’m sorry, that offer doesn’t apply to existing customers.”

I’m not certain that I agree with Esteban that the only way for customers to get the treatment they desire is to consistently vote with their feet when things like this happen. In telecom, customers “voting with their feet” seems to be the dominant business model, and I have to think it destroys long run value for everybody involved.

I’m not certain because of my basic beliefs in service and the lifetime value & loyalty rewards that result. But I could be wrong. Telfort (and all other telecoms) may have determined that their customer acquisition costs and the attrition related to existing customers scorned by the availability of better new deals are much less than providing continuously better (or best) value to their loyal, existing customer base. Its not a strategy that I would start with, but if everyone else in the industry used the same one (and it appears that they do) it might be the one that works best – even though it sends the entire industry into a vicious price-play cycle that is destructive to value all around and hard to break.

If all that were the product of deliberate strategy, however, the execution where Wim’s spouse gets a dramatic increase is an unbelievably poor execution. I’d think that if their business was predicated on keeping customers at the rate they entered on and aquiring new customers at a lower rate, modest increases might work (and be forgiven) but dramatic increases would speed the rate of “discovery.”

I am split here. I would like to agree with you – honestly, my thoughts are very close to yours and Wim, but we have a “reality does not match desire” problem in our hands.

As you say, telecom is all about churn – it is built into the model, it is part of the decision making, and I am quite certain that the company we are supposed to be discussing has gone through the same decision-making when preparing their pricing models (as Wim says above in a reply to a comment, offering different plans for new and existing customers is far from a customer-centric model, places too much emphasis on customer acquisition, etc.).

My question to you, considering the above, is – which one can you change, the chicken or the egg? the company behavior, or the customer behavior?

Which one is likely to change first (I know there are examples of both things happening in different industries – this conversation could not be taken verbatim to any other industries, some of them are already more advanced than telecom)?

This is what’s at the crux of this debate — the customer has not changed sufficiently in their predisposition to this industry for the industry to make a change, nor has the mindset among executives changed sufficiently to warrant a company change.

Either way, there needs to be a change initiated by the company – the question is which is going to be the catalyst.

Esteban I think you nailed it, as long as customers don’t demand change companies won’t have any incentive to either. I’m not sure I understand the business model, but screwing your customers until they complain is common enough so that it must be deliberate, and I bet it makes a lot of money.

But my perspective is that once you’re dealing with a company like that, loyalty and satisfaction and any goodwill they might build go out the window. Wim sums it up nicely in terms of destroying value. At that point, the relationship becomes ONLY transactional, and if there’s a cheaper and easier alternative, it doesn’t matter if Hugo or another person who does care about the brand comes along.

When a company treats its’ customers like they are worthless and expendable, for me, and I think for many consumers, that is the end of the discussion. Lowering the price just isn’t much of a motivator, since time is almost as precious as money.

1) I am sorry, I may be the only one who does not get it – why did your wife renewed with them? the fact that she renewed validates all the choices they made in regards to that. I get what you are saying about the WOM effect, but I would even be willing to bet that the lost value from WOM is baked into the customer acquisition and retention model (else, they are just plain stupid).

I seeing this, as well as most interactions between two entities – people-people or people-organization or even organization-organization, always realize there are two sides to the story. The value of recognizing what the other entity and being able to plan on that always surpasses “the right thing to do” in business. Sorry, that is reality.

Fact is, whatever your wife pays now is as close to 100% profit as it gets – or at the very least, very low cost. As a company in search of ever increasing revenues and profits, I want to keep old customers around – I already paid for them, their revenue is worth a lot more than a new customer. It all goes down to customer acquisition versus customer retention costs.

Sure, I am advocating against the customer — oh wait, no – I am not. I would if the customer had no choice, yet the choice your wife made to stay with them validated my thinking that she would – thus negating any potential benefit that she could’ve obtained from it.

Sure, label me a 1.0, inside-out, caveman business person – but — it is the way they (your opponent in this game) think about it. Want to get an advantage? then think about it the same game and act accordingly.

Sorry about the rambling, but as long as customers don’t change their actions (not their words, that already changed) companies will see no reason to change.

2) Speaking of benefits, get back to Hugo who is willing to extend some benefits back to your wife. Gotta give it to them, they monitor, listen, and engage — even if it is just to respond to squeaky wheels.

First of all thanks for the extensive contribution to the dialog here. Not only with this comment, but with all other comment-replies too. I haven’t read them all yet. I thought I’d first “tackle” this one..

On you first remark: I had the same question to my wife: why did you not vote with your feet? This is what she said: I decided to, but on my way out I noticed their current offer for my package at a rate of 8 euro/month.. And then I thought I could well safe me the time of looking any further. Maybe I can get it somewhere else for 6 or 7 euro, but I don’t want to spend so much time and then go through the hassle of migrating to a different provider, including the hassle of trying to keep my number etc etc..

Adrian Ott (aka @exponentialedge) wrote an entire book (the 24hour Customer) on this time-value phenomenon, but that’s what it is.

And I think this very reason is why Telfort does not really invest in retaining Customers. They know the switching-costs to the Customer are high, so they can spend their money elsewhere (acquisition)…

BUT.. (here it comes).. what I’m saying is that, without spending any (significant) euro’s Telfort could have had a lot more value than they currently captured. This is not a matter of costs, it is a matter of paying attention.. To make myself more clear:

I hope you agree with me that it doesn’t cost a lot of money to renew subscriptions, not at the “old contract” price, but at the rate one was paying prior to renewal.. that’s a matter of automation, which can be as easily done as renewing at the formal contractual rate without the discount..

If they would have done so, they would have kept my wife as a happy Customer and made additional earnings of 5 euro/month (pure margin) than they are currently doing, because my wife would be paying the same 13 euro she was paying before (and now she’s paying 8), because she just would not have noticed the two years expired. Easy math, nothing to do with being Customer centric and all.. Just be smart and try to think like your Customer, even if you do not mean it that way ;)

Of course Telfort chose to renew at the contractual rate of 23 euro (without the discount) because they calculate an additional 10 euro of value captured.. Compared to their model they now loose 15, not just 5..

Now I don’t go around calling people or organizations stupid. And I honestly believe Telfort is not either. But I do think they’ve created a myriad of offers and conditions over the past and present, that they do not see or understand the consequences of their own business rules (like extending at the contractual rate without the discount). And if you don’t know you cannot change..

But, that’s of course in hindsight in this situation.. what about predicting this, or scaling it to see what strategy would deliver the best outcome for the company..

The key message of my post is, that if they would have taken into account a wider approach towards Customer Value, in line with the 4 (even the top 3 would do probably) dimensions, like I did, then it could well be that (even if the majority of Customers still doesn’t notice and the subscription is automatically renewed) renewing at the 23 euro would have come out as a poor strategy. All because the likelihood that, taken all relevant factors into account, the outcome that value captured by the firm would end up lower by extending against 23 euro compared to extending at 13 euro, would be significantly higher..

And yes, you need proof, and so does Telfort. And it’s their job to obtain that somehow. But simply ignoring multiple Customer value dimensions AND ignoring what their Customers are saying, that would be stupid indeed.. I hope they take a hint and start investigating and testing what potential value there is for them by taking all value dimensions into account. Because there is no way of knowing exactly (or as close as it gets to that) without..

To conclude: I hope Telfort (and others) see that they can benefit directly, without any additional costs, if they think a little more like their Customers and/or listen to them. And I know they engaged me here.. but unless they learn and adapt from the engagement, their presence is nothing more than mere palliative..

I’m very sorry to hear your wife’s negative experience with Telfort. Allow me to try and make up for this experience by sending me your wife’s mobile number in a Twitter DM. I’ve already followed @wimrampen.

I never had any issue like this with telfort, luckily. What strikes me here is that most attention is given to attracting new customers and selling new products. Once you are a customer, there’s not much attention left, not even a simple email saying the end-date of your contract is within 3 months from now. And as you perfectly put it, such information would at least allow the trust of the customer to remain equal and possibly even improve it. But not many companies are interested in informing their clients, while there is hardly any effort on their side.

I wonder why. A company is only making profit with the services or products they actually sold or are selling. That’s where the money is, not in gaining the new customer. Do they make a business case for retaining customers? Or are the effects of improvements in this fielt too intangible to use for such a decision?

I think most people ask the same questions you do. Unfortunately most companies put a lot of emphasis on acquisition, not on retention. Actually, most do on the latter, but only when the Customer already made clear she wants to leave. Most companies are then able to retain let’s say between 5 % and 35 % of those Customers expressing their intention to leave. The extent to which they are able to get higher rates on this depends mostly on the amount they are willing to spend on keeping them. Most companies are smart and understand that if they spend a little less than they would on acquiring a new Customer it is a profitable business case.. Some are even smarter and look at the Customer’s past spend to assess how much the Customer’s actually “worth” to them, and base their incentive on that.. In my post I try to explain that there is more to the “worth” of a Customer than money alone..

On top of that I think this is all a very re-active approach. If companies would be a little more sensitive to dissatisfiers like the one in my post, they would be a whole lot better off in preventing these from occurring.

I think this practice is much similar to the practice of lowering interest-rates only announcing it afterwards in ‘a couple of national newspapers on page 15 in the bottom left corner of the right-side page..’ (“but hey, that’s what we say we do in our general terms and conditions..”). And it’s much similar to the automatic renewal of magazine subscriptions, that is also waiting for new laws to become effective to stop it..

I think companies are still in denial, but instead of fighting legal repercussions to the very end, the ones to move the needle and start building value propositions people need, not ones the company needs, will see the ocean of opportunity in these changes, not threats..

Apology for the ramblings :) Thx again and let me know if I answered your question?

Something similar happened to me a few years back with my electric provider. They were charging me nearly 100% more than the going rate. I quickly dropped them and always tell people to stay away from them when choosing a new provider.

Practices like this speak to a company’s culture. If they’re willing to screw a customer, then they’re probably just as willing to screw their employees. It quickly becomes a vicious cycle that’s hard to recover from.

I guess Esteban (see his comment below) likes it better that you actually left to choose a new provider.. And frankly I agree with him.. But I’ll get back to that a little later in replying to his comment.

I never understood why the mobile telecom industry puts so much efforts in the customer acquisition compared to what they do on retention …

My brother wirked as a sales person in mobile phone shop : you wouldn’t believe all the things he got based on the number of new subscription he had sold!

I think it looks more like a pissing contest between the operators to see who has stolen the most customers to the other …

They are in an almost unique position for textbook retention strategies and yet they don’t do anything about it! The only way they seem to know about how to retain a customer is by binding them with 2 years contracts with horenddous cancelation fees …

Agreeing with your comments is why I recommend that customers use the same mindset — i hate to use this phrase, but it is either bringing a pencil to a gun fight (the model of expecting the company to change), or a gun to a gun fight (fight them with the same weapons they use).

Glad to see your experience with Telfort Wim!
They just are plain idiots who think short-term and know that most customers won’t even check or change

You are perfectly right about the ongoing destruction, I’m now actively issuing people from chasing Telfort’s as an ISP

By the way, McAfee does the same: they prolong your contract without the initial discount, causing the price to triple. When you complain, they offer you a 30% discount, still leaving you pay double

So what did I do? I cancelled my subscription free of charge, and got one of the net with the discount. New customer data of course, new effort for McAfee, and my active propagation of telling everyone how much their extortion policies suck

what I don’t understand, Martin, is why would you get a new subscription with McAffee?

If they suck, and they are extorting you — your behavior as a consumer is what justifies their actions!

Are there no other providers? or has complacency and comfort replaced our ability to express what we really want and need? if this has happened, as I think it has, is that built into the models for these organizations?

that is what we need to change, the mindsets on both sides — think and act in a similar way, not think and act differently, then complain about what “they” are doing (this comment applies to both customers and organizations, btw).

I actually like McAfee as a product. I paid 38 euros for 3 licences, which is a fine price. Can’t get that product at that price anywhere else really – please hit me if I do and I’ll shower you with kudos

So, all things are absolutely not equal. Norton? 75 euros for the same. Kaspersky? 70. McAfee? 40 euros if you take the bait

It is absolutely not a PITA to change providers, this is my second year on McAfee really and all I need to do is deinstall / install something else, no legacy there whatsoever

I never say one thing and do another, I believe – that on a side note. And I never said I should change provider. But when I do, I do (ask my former ISP) – so again, I don’t get your PoV

The only thing McAfee does wrong, is almost triple the price upon prolongation. That’s where they disconnect product and service, and where it comes in handy that they can be seen apart from one another – which, btw, is a way to differentiate your product – although it shouldn’t be done this way LOL.
Yet, because I like the product at the price, I can simply work my way around their 1.0 manners and cancel my subscription, and get a new one. Writing this very answer cost me a few times more in time and energy

What you may not know btw is the fact that in NL it has become *really* easy to switch telco’s, ISP’s and other “durable producers”. It a by law now that all contracts are a first 12-month, then get prolonged per month. Only mobile offers you the possibility to get 24-month contracts, but those never pay off if you do the math (no one does however)